Egypt: Smallholder contract farming for high-value and ... - IFAD

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Organic production Smallholders involved in producing for the Sekem Group and Agrofood Egypt are mainly desert farmers located on new land of a minimum of 5 feddan each. Because the land of these farmers has not previously been cultivated, there is no conversion time from conventional to organic production. However, there are also smallholders on old lands who are involved in organic production under the Agricultural Exports and Rural Incomes Project initiative. It has been reported that these smallholders actually achieve yields similar to the yields of conventional farmers, but that these smallholders need significant technical assistance and that not all the produce can be sold at a premium, for example, there is no market for milk and meat in Upper Egypt, and the logistics in transporting these products to the metropolitan area for sale to the Sekem Group is too costly because of the low quantities. The smallholders located closer to the Sekem Group have a market for their entire production, including milk and meat. It is not feasible for smallholders to initiate organic farming without contractual arrangements with buyers who are able to purchase all the output of the farms. A well-organized exporter would be able to sell the non-exportable produce (milk and meat) to the hotel industry if the supply is constant. Comparison of produce handling Traditional domestic value chains are experiencing huge post-harvest losses due to the lack of cold chains. This exposes produce to the sun during many hours of transport in ambient temperature, resulting in the deterioration of the condition of the vegetables, which is aggravated by the bruising caused by poor packaging. The unhygienic packaging, together with the ambient storage at wholesale markets, also speeds up the deterioration of the vegetables. To reduce these losses, it is necessary to imitate the export value chains, in which produce is moved from producers all the way to end-users who reside as far away as Europe. This would require considerable investments in cold chains, including pre-cooling plants and storage and refrigerated transport to retailers. The recently organized shipping lines connecting the port of Alexandria to European ports without intermediate stops have increased the flexibility and reduced the costs of horticultural produce exporters. Alexandria is the last port of call before the ship arrives in Europe. It is therefore necessary to book cargo space well in advance to ensure sufficient space on vessels upon arrival in Alexandria. If space is ensured, these shipping lines are reliable for the shipment of perishable produce such as grapes, strawberries and green beans. When the cold chain facility at Luxor airport opens, it is expected that horticulture production in Upper Egypt will grow rapidly and will be accelerated when the planned private Italian investment in additional cold chain facilities is concluded. This growth would likely warrant the organization of shipping lines to call on the Red Sea ports, which are around 150 kilometres from Luxor and which represent an additional incentive for the production of horticultural crops in Upper Egypt. The produce could then be moved by refrigerated sea containers to Europe less expensively relative to the cost of using Alexandria port, which is 800 kilometres away and requires road transport. Box 4 Plant extraction in Egypt Egypt is one of the world’s major suppliers of high-quality pharmaceutical plants. However, the local pharmaceutical industry makes hardly any use of these raw materials. The companies generally use imported extracts from Europe instead of utilizing the more than 1,000 domestic plant species with pharmaceutical and cosmetic potential. Atos Pharma was established in 1986 as a joint venture company of the Egyptian private exporter the Sekem Group and the Deutsche Investitions- und Entwicklungsgesellschaft to develop the Egyptian natural pharmaceutical market. Atos Pharma has recently developed a pilot project that is in field trial; through the project, plants are cultivated, and the most favourable seeding and harvesting times and extraction procedures are tested. This public-private partnership project opens up valuable sources of raw materials for Atos Pharma, while contributing to more effective utilization of local resources. The results and lessons learned are highly promising for production scaling-up among small farmers. 45
Table 21 Comparison of cost mark-ups for the two value chains Share of farmer revenue, % Cost mark-up items Tomatoes* Potatoes** Farmer revenue (EGP) Cost of the crop 100 100 Pre-cooling, including transport from the field 63 Labour cost, harvesting 7.9 Grading and packaging, including carets and bags 44 9 Road transport 27.1 13 Sea transport and administration 134 Unforeseen and losses 19 Waste 37.7 Profit margin 55 106 Total cost mark-up 271.7 444 * Source: Table 5. ** Source: Table 13. Comparison of cost mark-ups Cost mark-ups in the traditional domestic value chains amount to 271.7 per cent. Of this, 81.7 per cent is related to waste (37.7 per cent waste and 44 per cent sorting related to the waste), which thus accounts for more than 30 per cent of the total cost mark-up. The corresponding figure in the export chain is 19 per cent, which equals 4.3 per cent of the total cost mark-up in the export chain. The cost of road transport in the domestic value chain is 27.1 per cent; the fleet of trucks in this chain is relatively old and expensive to operate. This compares with the 13 per cent in the export chain, which relies on newer and bigger trucks that are less expensive to operate. The actual profit margin as a share of total investment is 20 per cent for the domestic value chain and 24 per cent for the export value chain. The profit of 20 per cent for traditional domestic value chains is extremely high considering that 30 per cent of the total value added is made up of losses, which compares with the less than 5 per cent in the export value chain. Comparison of cost mark-ups among retailers The modern retail network price for horticultural produce is around 10 per cent less expensive than the traditional retail outlet price; moreover, the modern retailer is adding value to the produce by keeping it fresh, indoors, packed and well presented. Comparison of cost mark-ups among smallholders The growth in horticultural produce marketing through the traditional domestic value chains might be expected to bring about significant improvement in the situation of smallholders. However, this is not happening due to the missing or imperfect markets for credit and land rental, the inadequate marketing information and the poor organization among smallholders. Traders have been left in control of market coordination. If smallholders were to become organized into well-managed farmer associations and cooperatives, their bargaining power and their ability to capture the benefits of economies of scale could change the distribution of cost mark-ups, enabling the smallholders to increase their revenue significantly. If the smallholders marketed directly to wholesalers and if the profit of the traders could be added to smallholder household incomes, this would improve the returns, as shown in table 22. Even if smallholder marketing were only improved at the village level, there would be a significant increase in the profits available for smallholders. The average smallholder in Egypt generates 30 per cent of household income through plant production. This amounts to EGP 3,725, of which 36 per cent is derived from horticultural crops, amounting to EGP 1,340. 14 If the average gain for the two FTC categories in table 22 were added to 14/ Agricultural Statistics, Central Administration for Agricultural Economics, Ministry of Agriculture and Land, 2005. 46
Page 1 and 2: NEAR EAST AND NORTH AFRICA DIVISION
Page 3 and 4: Table of contents Currency equivale
Page 5 and 6: Currency equivalents Currency Unit
Page 7 and 8: Economic Impact of Smallholder Invo
Page 9 and 10: Introduction and study objective Th
Page 11 and 12: Background Country Economic Backgro
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Page 19 and 20: strength; have access to better inf
Page 21 and 22: Traditional domestic value chain an
Page 23 and 24: • Controls against plant pests an
Page 25 and 26: Retailers. Retailers supply all the
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Page 31 and 32: Value chain analysis on export qual
Page 33 and 34: Table 12 Selected processed fruits
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Page 37 and 38: GlobalGAP. Because of the strict st
Page 39 and 40: for shipment. Less perishable produ
Page 41 and 42: Discussing the findings Comparison
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Page 49 and 50: Crops It is clear that the producti
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Page 53 and 54: Annex 1 Economic development indica
Page 55: International Fund for Agricultural

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